This year’s U.S. presidential elections have the potential to introduce the most significant election outcome uncertainty since 2000. Protracted presidential election outcome uncertainty would present substantial downside risks to equity markets, industrial commodity prices, business investment, consumer confidence, and the economy.
Equity Markets Recently Hit New Highs
U.S. equity markets rose to new record highs last week following some easing in year-on-year September total Consumer Price Index inflation and easing year-on-year inflationary pressures throughout the Producer Price Index report.
Even though equity markets rose to new record highs, there were some mixed signals about inflation in the CPI report. On the upside, year-on-year total CPI inflation slowed in September from 2.5% to 2.4%, the lowest year-on-year pace since February 2021. On the downside, year-on-year core CPI was high and accelerated to 3.3% from 3.2%.
PPI inflation rates were also lower in September than in August as year-on-year total PPI inflation slowed from 1.8% to 1.9% and PPI goods inflation was negative, falling by 1.1% year over year. Meanwhile, year-on-year core PPI inflation (excluding food, energy, and trade) was elevated but also slowed to 3.2% from 3.3%.
Despite some mixed signals in the CPI report and the elevated year-on-year core CPI and core PPI inflation rates, inflation likely does not present the biggest downside risk to financial markets.
A more important spoiler for markets over the next month would be if there is protracted winner uncertainty following the U.S. presidential election.
Prediction Market Data Reflect The Potential For A Close U.S. Presidential Election
Any presidential election outcome short of decisive threatens to cast a long shadow of risk and uncertainty on financial markets until the result of the 2024 U.S. election is clear.
Data from PredictIt.org, an online prediction market operating “under permission from the CFTC” as “ an experimental project operated for academic purposes,” shows how people are betting on who will become president, among other things.
In mid-July, the percent probability of Donald Trump being elected president this November rose to an intraday high of 70%. Following Joe Biden’s withdrawal from the election and Kamala Harris’s nomination, the odds changed significantly, and the percent probability of a Harris victory rose to an intraday high of 60% by mid-August.
Since this summer, the odds have continued to shift, and on October 13, the intraday highs reflected that the odds of a Trump victory were 55% while the odds of a Harris victory were 50%.
Since the U.S. presidential election looks likely to be close, financial markets could come under pressure ahead of and after the election. The worst case for financial markets and the economy following a U.S. presidential election is if it is not immediately clear who the winner is. When this happened in 2000, it became a significant contributing factor to the onset of recession in early 2001.
Pew Research Data Reflect Risks Of A Contested Presidential Election Outcome Uncertainty
The outcome of the 2024 U.S. Presidential election looks likely to be close. However, what’s more of a concern is if the candidates contest the election results and outcome. The non-partisan think tank Pew Research released survey data on October 10, confirming risks related to protracted winner uncertainty following the U.S. presidential election.
According to Pew survey data, 72% of American voters responded that if Harris loses the popular vote in enough states for Trump to secure the electoral votes necessary to become president, she “will accept the results and acknowledge Trump’s victory.” Meanwhile, 27% of respondents believe Harris would not concede. Among those surveyed, 95% of Harris supporters and 48% of Trump supporters expect Harris to concede.
Meanwhile, Pew data reflected that 24% of American voters responded that if Trump loses, he will concede, while 74% say he will not. Among those surveyed, 46% of Trump supporters but only 4% of Harris supporters “expect Trump to acknowledge Harris as the election winner.”
If the current data from the online prediction market PredictIt.org and the opinions of American voters polled by Pew Research are even directionally correct, the odds of an uncertain 2024 U.S. presidential election outcome are high.
Financial Market and Federal Reserve Implications
The last time there was an unclear election outcome was back in 2000, which triggered a recession beginning with a contraction in Q1 2001 GDP. This previous experience indicates that an uncertain outcome this year could weigh on markets and the economy. It could even motivate the Fed to cut interest rates by 0.5% if the outcome of the presidential election is uncertain at the time of the next Fed decision on November 7.
Do you expect U.S. presential election winner will be quickly determined?
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